One set of duties, shared by every category of trustee director
For: Everyone on the trustee board, whichever seat you hold.
What the trust is
The trust is the legal arrangement that holds the shares in the trading company. The trust is not itself a company and it does not trade. The entire function of the trust is to own those shares in the trading company for the benefit of the employees, now and in the future, of the trading company.
Somebody has to hold the shares on the trust’s behalf, and there are two ways of doing it. In most employee owned businesses they are held by a trustee company, formed for that single purpose, and the people usually called “trustees” are in fact directors of that trustee company. In some employee ownership arrangements the trustees are individuals rather than a trustee company, holding the shares in their personal capacity as individual trustees.
The trust deed will show which arrangement applies. Checking it at the outset avoids confusion later.
The legal role
Where there is a trustee company, you have two distinct sets of duties to keep in mind. As a director of the trustee company you owe the duties any director owes. Through that company, you and your fellow trustee directors act as trustee of the Employee Ownership Trust, with the duties a trustee owes.
These guides use trustee director for the role and trustee company for the trustee itself. Where trustees act in their personal capacity the terminology differs, but the duties and the practical job are substantially the same and everything here still applies to you.
The trustee company owns the shares in the trading company and holds them as trustee of the Employee Ownership Trust, often shortened to EOT. It is worth remembering that the trustee company is not the trading company, and the board of trustee directors is not the trading company board. Keeping the two boards distinct is one of the most useful habits for a new trustee director.
Who you act for
All the beneficiaries of the trust. That means every eligible employee of the trading company, or of the trading group of companies, and employees who have not joined yet.
The duty is not owed to the person or group responsible for the appointment. Whether you were elected by colleagues, chosen by the trading company directors, appointed because you founded the business, or recruited from outside, your duties are identical and you are nobody’s delegate.
This distinction can be difficult in practice, for different reasons depending on the type of appointment. The four companion factsheets take each in turn.
What you are expected to do
Trustee directors are generally expected to do seven things. The duties are expressed in legal language, but their practical effect is reasonably straightforward.
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01
Act in good faith
Honestly, and for the purpose the trust exists for. You would breach this by supporting a proposal because it suited your own department, or you individually, rather than because it was right for the beneficiaries.
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02
Exercise independent judgement
Make up your own mind. You may take advice, and should, but the decision must be yours — not the founder’s, not the chair’s, and not that of whoever appointed you.
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03
Act within the powers given to you
The trust deed and the governance documents set the limits and explain what powers you have been given. If a decision is not one reserved to the trust, it is not yours to make. Appointing a sales director, for instance, is almost always a matter for the trading company board.
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04
Consider the interests of the beneficiaries as a whole
All eligible employees, including those who have not joined yet — not one department, and not whichever group has been loudest. This is what makes a decision to invest rather than pay a larger bonus a proper trustee decision rather than an unpopular one.
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05
Avoid unauthorised conflicts of interest
Where your own interests, or duties you owe elsewhere, could influence a decision, declare it and follow the agreed procedure.
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06
Obtain appropriate information before deciding
If the papers do not tell you enough, ask. A decision should not be made until the board has enough information to consider it properly.
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07
Exercise reasonable care and skill
The care a reasonably careful person would take, measured partly by what you bring to the room. Somebody with a finance background is expected to read the accounts more closely than somebody without one.
In practice most of this happens through three activities: reading what you are sent, asking about what you are not sent, and deciding the small number of matters reserved to the trust.
What you decide, and what you do not
The trading company board manages the business. The trustee board exercises the rights that come with owning the shares.
The boundary between them is usually drawn as a list of reserved matters — a short list of decisions which, although the trading company board runs the business, cannot be taken without the shareholder’s agreement. Typically they include issuing new shares, changing the articles, selling the business and making a major acquisition. They are set out in the articles, the trust deed, or a governance or shareholders’ agreement.
One qualification worth knowing early. The trust does not always hold all the shares. Where others hold a minority, the trust’s control is not complete and some matters may require the agreement of shareholders more widely. Find out what your own position is rather than assuming the trust decides everything.
Trustee directors are not there to run the trading company, approve its pricing, or second-guess its operational decisions. You are there to hold the trading company board to account for the way the business is run, and to decide the matters reserved to the shareholders.
A useful test in the moment: are we trying to make this decision, or trying to understand it?
The document that governs you
The trust deed. It creates the trust, names the beneficiaries, sets your powers, and says how trustee directors are appointed and removed.
It can be difficult to read without help. The advisers who took the trading company into employee ownership will often have prepared a briefing note explaining what the deed is for and what the various clauses and powers are intended to achieve. Ask for it.
Read the deed in your first month anyway. When something is uncertain it is the first place to look, and a surprising number of governance arguments end there.
Conflicts
Conflicts are normal and every category of trustee director carries its own. Declaring one is a sign the system is working, not an admission of anything.
What matters is that they are identified, recorded and managed — which may mean taking part, leaving the meeting for an item, or taking no part in a decision at all.
Ongoing qualifying conditions
The tax treatment of the original sale depends on conditions that continue to apply after completion, and the trustee board is the body best placed to notice when something threatens them.
Trustee directors do not need to memorise every statutory provision. What you need is to recognise four categories of decision, and to ask the question whenever one appears: anything affecting share capital or shareholder rights; anything affecting who benefits from the trust; anything affecting the composition of the trustee board; and any material change to what the trading company, or the wider group where there is one, does or owns.
Verification note
The conditions, and the periods attaching to some of them, changed at the Autumn Budget 2024 and again at the Autumn Budget 2025. If something happens that leads you to think a condition could be breached, take current advice rather than relying on what was explained at completion.
Priorities for the first month
- Read the trust deed, the articles of the trading company and of the trustee company, and any governance or shareholders’ agreement.
- Find out which matters are reserved to the trustee board, or to shareholders more generally, and whether the trust holds all the shares.
- Ask who the other trustee directors are, which category each of them is, and who appointed them.
- Ask what information the trustee board receives, how often, and how far in advance of meetings.
- Ask when the trading company was sold, and whether the clawback period has ended.
Common pitfalls
- Treating the seat as a mandate from whoever put you there.
- Confusing the trustee board with the trading company board, in discussion and in minutes.
- Accepting the papers you are given without asking what is missing.
- Never reading the trust deed.
- Remaining silent because others appear more experienced. Each trustee director was appointed for a reason, and the board benefits from hearing each person’s perspective.
This factsheet covers what is common to every trustee director. Four companion factsheets cover what is distinctive about the employee, executive, founder and independent seats. Fuller treatment is in the governance resource.